The present invention relates in general to customer loyalty programs, and, in particular, to such programs involving a customer card for receiving and redeeming loyalty incentives.
Loyalty programs are in common use and have become an inseparable part of modern retail commerce. Consumers are encouraged to make certain purchases and/or to patronize certain vendors by virtue of the loyalty incentives offered to them for making those purchases with those vendors. The benefits to the merchants are in increased repeat business and in gaining an improved understanding of the preferences and behavior of their customer. The benefits to the consumers are in redeeming their accumulated incentives for various bonuses and premiums. Such bonuses and premiums include, but are not limited to, free products, services, and discounts. Consumers may also earn loyalty incentives in ways other than by making purchases, such as by filling out questionnaires and by participating in market promotion activities. The quantity of loyalty incentives are typically expressed to consumers in non-monetary terms, non-limiting examples of which are “points” and “air-miles”. By not identifying loyalty incentives as having explicit monetary values to consumers, merchants gain considerable freedom in using the loyalty incentives in their business.
A loyalty program is denoted as “open” when more than a single vendor participates. This is the case, for example, when purchases in a supermarket, a hardware store, and a drugstore earn “air-miles” redeemable for tickets issued by a participating airline. An open loyalty program includes a number of vendors who form a group which is herein denoted as a “loyalty coalition”. As another example, suppose a supermarket in a loyalty coalition wishes to conduct a promotional campaign on a particular item. The supermarket might make a special offer to its customers whereby they can purchase two such items for the price of a single item plus 500 points. The customers may have earned these points by shopping at the supermarket, or they may have earned them elsewhere, such as by shopping at the hardware store. In any case, customers can purchase a single such item at the supermarket, and by redeeming 500 of their loyalty points, get an additional item “free of charge”. In a similar manner, the hardware store can also conduct promotions to redeem points earned by the consumer when shopping at the supermarket. In reality, of course, it is the consumer who ultimately pays entirely for the points and the items for which they can be redeemed. However, by disassociating the loyalty points from monetary value, the consumer is given the impression that he has “earned” these points without work, simply by participating in the loyalty program, and that consequently they are “free” and the items he can obtain by redeeming them are also “free”. In contrast, if the loyalty points were expressed in conventional monetary terms, not only would merchants have far less flexibility in using these loyalty incentives to promote their businesses, but the consumers would be made acutely aware that the entire cost of the loyalty program is coming out of their pockets in terms of higher overall prices. This would draw more attention to pricing, invite more serious comparison shopping, and would defeat the purpose of the loyalty incentives. Thus, the clear separation of loyalty incentives from monetary value at the consumer level is an important marketing consideration in any loyalty program.
In an open loyalty program, because it is possible to redeem loyalty points earned from one vendor via another vendor, a centralized online database of loyalty points is usually established to manage points, transactions therewith, and inter-vendor settlements. Inter-vendor settlements are used to compensate vendors who redeem points from vendors who have granted these points to their customers. The settlement is usually based on monetary equivalents at an arbitrary predetermined exchange rate. For example, 100 points may have a monetary value of $1.00. Exchange rates can also involve more complex formulas and schedules.
Examples of loyalty-related prior art can be found in U.S. Pat. Nos. 5,689,100; 5,774,870; 5,806,045; 5,905,246; 5,974,399; 5,991,376; 6,003,013; 6,009,415; 6,061,660; 6,119,933; 6,138,911.
Another area of interest to the present invention is the management of micropayments in conjunction with credit and debit accounts (herein collectively denoted as “charge accounts” for making “charge payments”). Credit and debit involve per-transaction processing costs that are independent of the transaction size. The banking industry, however, collects transaction fees that are usually related to the transaction size. This makes smaller transactions unattractive or even economically prohibitive for the banks. For example, if processing costs are 30¢ and the merchant pays a fee of 3% of the transaction size, then a transaction below $10 will yield a loss for the banks. The well-known technology of “stored value” uses secure chips (such as are contained in “smart cards” and mobile telephones) to store and transfer value without incurring any per-transaction overhead. A specific approach for using stored value to buffer credit and debit transactions is described in U.S. Pat. No. 5,744,787, U.S. Pat. No. 6,076,075, U.S. Pat. No. 6,065,675, and U.S. Pat. No. 6,119,946, all of which are incorporated by reference as if set forth fully herein.
As previously noted, open loyalty incentive processing usually requires a centralized database. Management of an open loyalty system involves both maintaining individual consumer loyalty accounts as well as inter-merchant accounting for settlement. Although the consumer loyalty accounts are denominated in terms of “points”, “air-miles”, and the like, merchant accounting is expressed in terms of money, and inter-merchant transactions are monetary-based. Databases for managing loyalty programs thus require computing, communication, and security that are similar to those used for regular monetary systems, in addition to capabilities not found in regular monetary systems. The larger the scale of a loyalty coalition in terms of the number and diversity of participating vendors, the more demanding are the associated loyalty databases and networks. Therefore, a limitation of prior art open loyalty program processing systems built around centralized databases is that they are not easily scalable. Adding new vendors is not easy, and as the system grows the complexity becomes greater, more burdensome, and harder to manage.
There is thus a widely recognized need for, and it would be highly advantageous to have, a system and method for open loyalty program processing that can efficiently and economically handle large numbers of diverse merchants and large numbers of participating consumers, and in such a manner that increasing the number and variety of participants does not increase the complexity of the system. These goals are met by the present invention.